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BW: What Really Happened at Boeing (Dec. 5)

NEW YORK --- In its December, 15th issue, BusinessWeek, takes a behind-the-scenes look at events which may have led to Philip M. Condit's abrupt resignation on Dec. 1 as chairman and chief executive officer of Boeing Co. after tumultuous seven-year tenure. Recent allegations of questionable conduct by a Boeing executive involved in negotiating an $18 billion deal with the Pentagon was only the latest mishap in a series of ethical lapses and managerial blunders that marred Condit's reign.

Mr. Condit had survived an array of crises before this latest upheaval, and the chairman had no intention of bailing out this time, according to people who are close to the company. But, under pressure from the board, Condit offered his resignation. According to an old friend who talked to him on Monday night, the CEO was distraught. Condit and Boeing insist his exit was voluntary.

Condit's troubles started almost as soon as he moved into the CEO's office. Within a year, he had steered Boeing into a manufacturing crisis that took Wall Street-and the board-by surprise and ultimately caused the company to take a $2.6 billion write-down. Last year, in a telling coda, Boeing paid $92.5 million to shareholders who accused the company of using accounting tricks to hide the damage prior to the crucial merger with McDonnell Douglas.

Although Condit often trumpeted his visionary strategic skills, they failed him when it counted most. As late as 1996, in a meeting with Boeing's legendary European salesman, Rudy Hillinga, Condit assured him that Airbus would never launch the A380 program. According to Hillinga, Condit said: “I'll give you my personal guarantee that this time around, Airbus will not succeed.”

By the spring of 1998, with earnings struggling, global markets in a nosedive, and the stock under pressure, investors were calling for Condit's head and pressuring directors to do something. On a Saturday in early September, he called Ron Woodard, then president of the commercial airplane division, and asked him to come to the office. Condit told Woodard this hurts me more than it hurts you-and fired him. Woodard became the fall guy for the manufacturing collapse. “He told me he had a real close brush with the board, and he was almost dumped two months before,” Woodard told BusinessWeek.

As Condit rose through the ranks, his private life became more of an issue within the company. Former Boeing Chairman Frank Shrontz had long been concerned and had confronted Condit several times about his in-house personal relationships, say people in the know. Shrontz declined to comment. Former Boeing director Charles M. Piggott, retired chairman of Paccar Inc., had expressed concern to several senior Boeing executives about Condit's behavior. Piggott did not return calls seeking comment. Said one Boeing lawyer to a senior Boeing executive: “we have another Bill Clinton on our hands.”

After his second marriage, to a Boeing secretary, broke up in 1990, Condit embarked on a relationship with a Boeing receptionist, Laverne Hawthorne. They dated for about six months-until Condit got promoted to president in 1992. About the same time, the company's customer relations department downsized, and Hawthorne was issued a pink slip.

Hawthorne told BusinessWeek that she immediately went to see him in his office and reminded him of promises he had made to her. As Hawthorne recalls it, she looked him in the eye and said: “One of us in this room has balls, and it certainly isn't you.” Then she stormed out.

Hawthorne declines to say whether she filed a wrongful-termination suit against Condit or received a settlement from the company, but several Boeing executives say both happened. “There was a lawsuit and a settlement,” said one Boeing exec. Condit declined to comment.

Boeing has other woes relating to women. A class action alleging widespread pay discrimination against women is now pending in federal court in Seattle. The suit alleges that top company officials knowingly underpaid women and denied them promotion to “enrich the corporation” at their expense, says plaintiffs' lawyer Mike Helgren. Boeing says that allegations are without merit. The documents in this suit have been sealed by the court. BusinessWeek has asked to have them unsealed. That motion is pending.

After Condit resigned, the board awarded the CEO title to one of their own, Harry C. Stonecipher, 67, who had served for five years as Condit's No. 2 after Boeing acquired McDonnell Douglas. Stonecipher's mettle will immediately be tested by a momentous decision, writes BusinessWeek. By Dec. 15, the board is expected to decide whether to commit to the development of the 7E7 jetliner, which would be Boeing's first new airplane in a decade. The decision will say much about Boeing's commitment to the commercial airplane market.

What Really Happened: Flawed strategy, lax controls, a weak board, and personal shortcomings contributed to the downfall of Boeing CEO Phil Condit